Higher Wages Equals More Success

The newly-Democratic House of Representatives just passed a bill making the minimum wage $7.25 per hour in 26 months-the level already mandated in New York as of the beginning of this year. Never mind that this rate will be almost three dollars below the inflation-adjusted peak of the federal standard in 1968 by March 2009, conservatives have wasted no time in predicting massive unemployment and everything from the death of the small American business to the arrival of one or two of the Four Horsemen of the Apocalypse.

The importance of a higher minimum wage can be amply demonstrated by a comparison of the full-time annual minimum wage ($10,712) to the 2006 poverty guideline for a family of two ($13,200). Republicans typically wax sentimental about small businesses and local industries when this issue comes up. Democrats should consider calling their bluff, which would be fairly easy and would also expose their hypocrisy in another debate: the one over free trade laws.

Not that Democrats have been the patron saints of fair trade either. Clinton pushed hard for the North American Free Trade Agreement (NAFTA), and several prominent Democrats even supported the contemptible Central American Free Trade Agreement (CAFTA). However, fair trade has become an increasingly prevalent issue in the Democratic Party, and many of the new faces in the 110th Congress campaigned against reckless trade liberalization. Democrats must call Republicans to account for their neglect of American workers and local businesses in pushing for expansive trade agreements and opposing protections for local agriculture and local production.

The businesses that Republicans claim will be destroyed by minimum wage laws are not the Big Box retailers and sprawling factories most of us imagine when we think of a low-wage environment. Rather, Republicans talk about the small business owner, who simply cannot afford that extra four thousand dollars per worker per year, and who will lay off his workers in order to make ends meet. This will lead to massive unemployment and an economic downturn, since small business employment leads to more economic output, the claim often goes.

Does higher unemployment really result from wages above the market rate? The conventional wisdom remains in the affirmative despite contrary examples ranging from Henry Ford's profitable decision to pay his workers five dollars per day to modern Oregon, which raised its minimum wage significantly in 2002 and mandated automatic inflation-indexed increases thereafter. The Oregon standard now towers over the federal one at $7.80 per hour, so how has the Oregon job market compared to the nation as a whole since the increase? Look no further than conservative bastion the Wall Street Journal for the answer: "Oregon's experience suggests the most strident doomsayers were wrong. Private, nonfarm payrolls are up 8% over the past four years, nearly twice the national increase. Wages are up, too. Job growth is strong in industries employing many minimum-wage workers, such as restaurants and hotels. Oregon's estimated 5.4% unemployment rate for 2006, though higher than the national average, is down from 7.6% in 2002, when the state was emerging from a recession."

Of course, the same WSJ article points out one problem with the minimum wage increase. A few select industries that are easily shifted out of state, such as seasonal farming industries, have suffered from the law. One farmer told the paper, "Why grow a potato here when you can do it in Idaho for $5.15 an hour?" That is exactly why the national minimum wage must also be raised and indexed to inflation. The article points out that workers abroad may be paid even less, further eroding the competitiveness of employers paying a higher minimum wage. We must therefore renegotiate trade agreements to make trade fair to workers.

When laws are not in place to protect small and local businesses from competitors in jurisdictions that choose not to follow the same high standards set by local governments, those businesses suffer. The national minimum wage must be a meaningful support for all workers, not a vacancy hiding behind interstate commerce protections and pressuring states seeking investment to suppress wage increases. And the national minimum wage, like our environmental laws, labor laws, workplace safety laws, and discrimination laws, must be enforced by trade protections that prevent competitors circumventing the very laws we deem morally necessary. So does Congress really care about small American businesses? If so, they should continue to increase the minimum wage, and then take a hard look at the consequences of trade liberalization.